By Sree Vidya Bhaktavatsalam
Jan. 14 (Bloomberg) -- Fidelity Investments is opening Magellan Fund to new investors for the first time in more than a decade as it seeks to capitalize on a turnaround by manager Harry Lange.
Lange, who took over Magellan in October 2005, beat 82 percent of rivals in 2007 as the $44.8 billion fund posted its highest returns in 14 years. Once Fidelity's largest fund until the Internet boom went bust, Magellan will take new deposits starting tomorrow, the world-biggest mutual-fund manager said today in a statement.
Fidelity declined to say whether it would open any of the 10 other funds that are shut to new investors, including the $81 billion Contrafund, its largest. The Boston company hasn't attracted as much new money as Vanguard Group and American Funds because of poor returns and the large number of closed funds, which it said had gotten too big to manage effectively.
``Fidelity is re-opening the flagship fund because it finally has performance that it can crow about,'' said James Lowell, chief strategist at Adviser Investment Management Inc. in Watertown, whose clients buy Fidelity funds.
Lange, 55, who replaced Robert Stansky as Magellan's manager, last year steered more money overseas and into technology stocks. He also relied more on Fidelity's team of research analysts to pick stocks. The fund returned 11 percent in the past 12 months, compared with the 0.3 percent gain by the Standard & Poor's 500 Index.
Questions About Assets
``The fund has been in net outflows since I took over,'' Lange said today on a conference call with investors. ``2007 was the year that we started to see the results of our build-out.''
Magellan's assets have dropped 30 percent under Lange as market appreciation was offset by more than $12 billion in customer withdrawals. The outflows were from clients nearing retirement, Walter Donovan, president of Fidelity's equity division, said on the call. About 85 percent of the fund's assets are held in retirement accounts such as 401(k) plans, he said.
Magellan will see an influx of cash from investors looking to benefit from Lange's track record, Dan Lefkovitz, an analyst with Morningstar Inc. in Chicago, said today in an interview.
``It is still a very big fund, and we hope Fidelity is careful about monitoring asset growth in the future,'' Lefkovitz said. Morningstar gives Magellan its second-highest rating of four stars over the past three years.
Fidelity pulled in $1.9 billion of deposits in the first 11 months of 2007, compared with $70.6 billion for Valley Forge, Pennsylvania-based Vanguard and $67.6 billion for American Funds, which is based in Los Angeles, according to Financial Research Corp. The Boston-based research firm's data don't include Fidelity's $60 billion in money-market funds.
Magellan's top holdings as of Nov. 30 were Finnish mobile- phone company Nokia Oyj, Corning Inc. and Internet-search company Google Inc. Nokia shares surged 71 percent last year, while those of the Corning, New York-based maker of glass for liquid crystal displays rose 29 percent. Mountain View, California-based Google's shares surged 53 percent in 2007.
Lange changed nine of Magellan's top 10 holdings in his first two months. Selling S&P 500 stocks including Pfizer Inc. and Exxon Mobil Corp. before they started to rally hurt returns in 2006.
Stansky, 51, who oversaw Magellan from 1996 to 2005, was criticized by investors for mimicking the S&P 500. Stansky said he was only staying within boundaries set by the fund's prospectus.
Ned Johnson, Lynch
Lange doesn't adhere to stock indexes. His stake in technology companies is twice that of the S&P 500. He has moved more than a quarter of the fund to stocks outside the United States. Lange's predecessors had virtually no investments in non-U.S. companies.
Magellan, which was once managed by Fidelity Chairman Edward ``Ned'' Johnson III, was the industry's biggest actively managed equity fund after assets climbed to $110 billion in August 2000.
Previous managers have included Peter Lynch from 1977 to 1990, Morris Smith from 1990 to 1992 and Jeffrey Vinik from 1992 to 1996. Lynch, 63, produced average annual returns of 29 percent by buying shares of companies every person can understand, such as carmakers and clothing stores.
The fund was battered during the bear market of 2000 to 2002 and suffered more than $50 billion in investor withdrawals and market declines while returns fell behind those of competitors. The fund fell an average of 15 percent in the three years ending 2002, about the same as the S&P 500.
Closely held Fidelity manages about $1.5 trillion including mutual funds and money-market funds.